Adam Smith argues that retaliation in a trade war can sometimes force the offending country to lower its tariffs, but more often than not the reverse happens (1776)
Found in The A B C of Finance
Adam Smith (1723-1790) grudgingly admits that retaliation in a trade war may have some good effect if it leads to the abandonment of the initial protective duty, but he is highly doubtful that the “insidious and crafty animal, vulgarly called a statesman or politician” can or really wants to end protection in this manner. All it does is benefit a few at the expence of the many:
There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them.
In this quotation Adam Smith cites a number of examples involving the Dutch, where retaliation in a trade war can force the offending nation to withdraw its new tariff or restriction and return to free trading. However, he is also aware that this is not always going to happen because that creature, the “insidious and crafty animal, vulgarly called a statesman or politician” can continue the trade war knowing that he will not have to bear the brunt of the costs, these being passed onto “other classes” in the society.